October 2024 Budget – What does the Budget mean for buy-to-let?

October 30, 2024

A government Budget is always a key time for the property industry. It sets housebuilding rates, taxation levels and much more that affects everyone involved, particularly buy-to-let investors.

This year, the UK property market is growing at its fastest rate in two years and we are at the start of a new property cycle.

Investors, developers and industry analysts for this reason have all been waiting to see whether the Budget will continue this growth.

Now, with the Budget announced, we can say that the overall investment picture is strong and investors from around the world can buy UK property with confidence.

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Major Housebuilding Programme

The new government has been open about its housebuilding plans since coming to power, and this Budget cemented that with additional funding from the Chancellor, Rachel Reeves.

She said: “We are rebuilding Britain by ramping up housebuilding and delivering the 1.5 million new homes we so badly need.”

To support this the government will supply £3bn of funding to help build those homes on top of a previous £500m commitment to build more social housing.

Interestingly though, the overall target is still less than the annual target of 370,000 new homes a year when that is spread across five years.

It is also much less than what we need to meet demand entirely. The Centre for Cities estimates that we need more than 4.3 million new homes to clear the backlog. They go on to say that it will take half a century to fill the gap with current building rates.

For investors, that means the fundamental appeal of UK property as an investment remains the same even with the funding for mass house building announced in the Budget.

There aren’t enough homes to go around, and that means competition for what is available will only grow. Both house prices and rents will keep increasing in the coming years due to this competition, meaning property will remain a reliable investment.

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Interest Rates and Inflation

The Chancellor confirmed that the national inflation target will remain at 2% and that forecasts from the Bank of England confirm that the target will be met within the next three years.

It is already close to the target and that has caused the Bank to reduce the base rate of interest. The lower interest rate is reflected in high street lenders reducing their borrowing costs, cutting the price of mortgages and making property investment more affordable.

If inflation stays around 2% as the forecasts say, it is likely that the base rate will continue to fall in the future. The next cut is widely expected to come in November or December 2024, leading to more falls in mortgage rates next year.

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Capital Gains Tax

There was much speculation around Capital Gains Tax (CGT) before the budget. Many analysts saw this tax as one of the main ways the Chancellor could raise more money to help balance the national budget.

This is because Capital Gains Tax was set at 20% which compares favourably to the higher and additional rates of income tax, despite often giving people a windfall much higher than their wage.

The rates for capital gains tax were increased in the Budget as follows:

Lower rate – 10% to 18%
Higher rate – 20% to 24%

However, that does not include residential property where the rates will remain the same. That means investors will not have to pay more than they already do for capital gains.

For more information on Capital Gains Tax, see the government website.

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Inheritance Tax

Inheritance tax rates were also frozen for two years, meaning that you will not pay more than you previously would have under the previous Budget.

The rate is 40% on anything over the threshold of £325,000. That threshold rises to £500,000 if your estate passes to a direct descendant.

For more information on inheritance tax rates, see the government website.

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Stamp Duty

The thresholds for Stamp Duty are currently artificially high until April 2025. The charges don’t kick in until a threshold of £250,000 for any home, or £425,000 if you are a first-time buyer.

The rate for second properties will be increased by 2% to 5% in the new Budget, raising the cost of investing in property slightly.

However, it is worth bearing in mind that house prices are rising at the fastest rate for two years and are forecast to continue rising in the next four year cycle. The speed of growth will be far higher than any increased Stamp Duty charge and will make sure that investor profits are still very strong.

There were no additional Stamp Duty rates announced for overseas buyers, meaning that the additional rate for overseas investors will not increase further.

For more information on Stamp Duty rates, see the government website.

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Rent Caps

There was no announcement about any caps on rent in the UK, meaning that rental growth will not be limited.

That means long-term rental forecasts will not change. For example, Savills predicts that the average UK rent will be 18.1% higher by the end of 2028.

It also means that rents will continue to rise faster than wage growth.

If you want to learn more about investing in the UK and the best places to invest, Get in touch with our team today to discover our available opportunities.

October 2024 Budget – What does the Budget mean for buy-to-let?

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